Viet Nam Coffee Helped by Good Weather, Hurt by Fertilizer Costs

Viet Nam's coffee crop, the world's biggest after Brazil, is benefiting from good weather and its key growing region may harvest as much as last year even as farmers skimp on fertilizers, government and industry officials said.

``The trees are now in fruit-making process which is well developed at this stage as the weather is favorable,'' Luong Van Tu, chairman of the Viet Nam Coffee and Cocoa Association, or Vicofa, said in an interview in Hanoi yesterday. ``It's very hard to tell right now how big this crop's output will be.''

Viet Nam is the largest grower of robusta beans used in instant coffee and espresso. The harvest usually starts in October and any increase in supplies may slow a rally in prices, which jumped 43% in January and February before signs of an improvement in weather conditions stalled the gains.

``The plants look well and the weather is quite good now, but the rising costs of fuel, pesticides and especially fertilizers that have hurt farmers, may result in smaller yields,'' said Nguyen Van Sinh, deputy director of the agricultural department in Viet Nam's main coffee-producing province of Dak Lak.

The Southeast Asian nation may increase production by 23% to 21.5 million bags, or 1.3 million metric tons, in the season ending September 2009, compared with 17.5 million bags in the previous year, the U.S. Foreign Agricultural Service said in a report dated May 12. Yields will gain 22%, it said.

`Less Fertilizer'

This year's production from Viet Nam's main growing province of Dak Lak is estimated at 370,000 tons, unchanged from 2007, Sinh of the provincial agricultural department said.

``Farmers have been applying less fertilizer because of high prices,'' Vicofa's Tu said.

Prices of the fertilizers most commonly used in coffee growing, namely phosphate, potash and urea, have risen steeply, Nestor Osorio, the head of the London-based International Coffee Organization, said in March. Fertilizer costs have been boosted by higher energy prices and increased demand for crops for food, fuel and animal consumption.

``The decline in the use of fertilizers consequent upon the oil price explosion may have a negative impact on production,'' Osorio said. Crude oil prices in New York reached a record $135.09 a barrel on May 22.

Dong Drops

The depreciation of Viet Nam's currency is further hampering farmers' ability to pay for imported fertilizers, said Hua Thanh Hong, business manager of Sept. 2nd Import-Export Co. The Dak Lak-based company is among the top three Vietnamese coffee exporters by volume, according to Vicofa.

``Coffee was traded at around 33,500 dong ($2.06) per kilogram in Dak Lak this week, about 35 to 40% higher than the same time last year, while fertilizer prices rose 150 to 200%,'' Hong said.

The dong has declined against the dollar for three straight months, the longest losing streak since August, on accelerating inflation, a widening trade deficit and a near 60% slide in local stocks this year. The dong gained 0.2% today to 16,242.50 versus the dollar as of 9:50 a.m. in Hanoi, according to data compiled by Bloomberg. The currency has weakened 1.5% in 2008.

Weaker purchasing power has also reduced stockpiling of coffee for forward sales, Hong said.

``Not much coffee from the new crop has been sold forward because most traders are in short of cash,'' Hong said. ``Since the government pursued tighter monetary policies, it has been very difficult for us to get bank loans to buy coffee.''

Robusta coffee futures, which have gained 23% in the past year, rose for the first time in three days in London yesterday. The July-delivery contract climbed $54, or 2.4%, to $2,268 a ton on the Liffe exchange.